Last year at this time we talked about the 100th anniversary of our brand symbol, the crane, which coincided with the most successful year in our Company’s history.
By refreshing our brand image, we have begun a new chapter in the history of the Lufthansa Group. The modern design embodies our combination of tradition and innovation and underlines our aim of setting standards in our industry.
In 2018, our financial results fulfilled this aim: The Lufthansa Group was one of the few companies in the sector to have achieved the targets set at the start of the year. Despite numerous challenges, the result was almost on par with the previous year. Integration costs at Eurowings in connection with the takeover of significant parts of Air Berlin, irregularities in flight operations and much higher fuel costs added up to a massive financial burden. Profitable growth and efficiency gains nevertheless enabled us to compensate for most of these adverse effects.
Network Airlines performed particularly well in this difficult environment. The results of Lufthansa German Airlines and SWISS broke new records. The Logistics, MRO and Catering segments all beat their previous year’s results too.
Our appreciation of these good figures is clouded, however, because 2018 was an ambivalent year. We did not always live up to our premium promise to our customers, and disappointed many of our passengers with delays and flight cancellations. The entire air transport industry – from the airlines to airports and air traffic control – revealed operating weaknesses last year as a result of disproportionate growth in air traffic. We reacted promptly and are working with our partners to find good, fast solutions for our customers.
Our contribution consists of a whole bundle of measures: We are drastically increasing the number of reserve aircraft and recruiting more than 600 additional employees to ensure stable processes. We are building more slack into flight timetables and extending ground times to prevent delays from rippling across the whole day. And above all we are paying great attention to improving communications with our customers, in order to give them full and timely information when their flight does not go as planned. Altogether we have defined more than 400 individual measures, which are the responsibility of the specially introduced Executive Board function for Airline Resources & Operations Standards.
All this is intended to encourage our customers to refocus on what sets us apart from our competitors: our high-quality product, which in Europe at least has no equal. In future, we want to give our passengers even more individual service in order to represent their personal needs even better. It starts with little things that betoken a premium experience in a given situation, but also includes innovations that will set new standards in our market segment.
This includes the newly developed Business Class that we will be installing in the new Boeing 777-9s in the coming year, for which we are the launch customer. It will be the most spacious and individual Business Class that we have ever had on our long-haul routes. The renewal of the fleet is having a positive impact on the Lufthansa Group in many other ways too. A 20% cut in fuel consumption enables us to sustainably reduce CO₂ emissions and costs.
In direct traffic, we want to make Eurowings what we already are with our Network Airlines: the leading European airline in its segment. 2018 was an extremely difficult year for Eurowings, because it had to deal with an unprecedented growth spurt in a very short period of time. Now that the integration is complete, flight operations have to become more reliable and more stable again in order to improve customer satisfaction. This should also increase profitability at Eurowings, because we are simplifying structures and processes that in some cases became extremely complex in the course of the takeover.
Ladies and gentlemen, our airlines are leaders in Europe’s strongest markets. This has also put us in a strategic position for future profitable growth. Brexit, trade conflicts and the impending downturn in the global economy mean that the outlook for us and our industry is subject to some uncertainties. But the long-term demand for air travel will continue to rise, regardless of the ups and downs of the global economic cycle. This growth is increasingly coming up against the limits of existing infrastructure, as we experienced painfully last summer. Smaller airlines and new entrants to the market will find it more and more difficult to compete under the current circumstances. As the market leader, we will benefit from this consolidation. We are therefore confident that we will be able to continue increasing the value of our company going forward. The title of this year’s annual report, “Striving for excellence” puts it very well: We want to set standards in our industry – for the good of our shareholders and all our stakeholders.
We would be pleased if you would continue to accompany us on this journey.
Frankfurt, March 2019
Chairman of the Executive Board and CEO of Deutsche Lufthansa AG
Chairman of the Executive Board and CEO of Deutsche Lufthansa AG
It is not just an investment for shareholders who have “kerosene in their blood”. Apart from the fascination of aviation, there are convincing financial reasons for buying shares in Lufthansa. The Lufthansa Group is in a stronger position today than ever before. Our earnings in 2018 confirm that we have sustainably improved our business model. We therefore have the ideal conditions to continue recording profitable growth in the coming years. We want to include our shareholders to participate in this growth by increasing our company value and continuously paying a dividend.
We serve all relevant market segments in Europe’s strongest economies via Network Airlines and Eurowings, which offers direct connections. With Lufthansa German Airlines, SWISS and Austrian Airlines, we have strong brands that stand for excellent quality. And with Eurowings, we have become the third-biggest provider of direct flights in Europe within a very short period of time. We intend to significantly increase its profitability in the coming years.
Our focus in the short term is on improving our operational stability, reducing our unit costs further and completing the turnaround at Eurowings. However, this will not be at the expense of other issues such as our digitalisation initiatives, the successful implementation of our distribution strategy and the modernisation of our fleet. Above all else, our aim is to achieve sustainable and profitable growth and maintain a balance between the interests of our customers, shareholders and employees at all times.
Champagne and caviar? Today, premium means more than that. Every customer is unique and has their own individual preferences and expectations. In a competitive environment with luxury carriers at one end and low-cost airlines at the other, the Network Airlines of the Lufthansa Group must define premium in a way that distinguishes them from their rivals. We have achieved just that with “New Premium”.
This new premium standard shared by Lufthansa German Airlines, SWISS and Austrian Airlines is simpler, friendlier and more personal. The key factor is what the customer regards as premium. New Premium is created by two types of experiences: Those that are apparent at first sight, and those that reveal themselves in very special moments of surprise, delighting customers. “Brilliant Basics” and “Magic Moments”.
Uncomplicated booking, faster check-in, tasty food, reliability and comfort: All of these are basic services that customers expect. When their quality is second to none, they become Brilliant Basics.
With Magic Moments, we redefine customer appreciation: Problems are resolved before they arise, and customers are delighted by individual, personal treatment. This can be an attentiveness that is both simple and unique, such as a hand-written birthday greeting placed on their meal tray. These Magic Moments, and others besides, can be experienced at all of the Lufthansa Group’s premium airlines – along the entire travel chain and not just on board.
The Lufthansa Group has a comprehensive global route network. In the 2018 summer flight timetable, the Lufthansa Group passenger airlines operated a route network comprising 343 destinations in 103 countries.
Commercial joint ventures with leading international airlines also make connections more attractive for customers, partly by adding new destinations to the route network. Commercial joint ventures exist with United Airlines and Air Canada on routes between Europe and North America, and with All Nippon Airways (ANA), Singapore Airlines and Air China on routes between Europe and Japan as well as Singapore and China respectively.
Total revenue in €bn
Adjusted EBIT in €m
Adjusted ROCE in %
Dividend in €
The Lufthansa Group again reported strong growth in 2018. The airlines in the Lufthansa Group carried a total of 142 million passengers, more than ever before. New highs were also achieved in terms of capacity, sales and passenger load factor.
Revenue increased by 6% after adjusting for the effects of first-time application of the accounting standard IFRS 15 (Revenue from Contracts with Customers). Adjusted EBIT for the Group saw a decline of 4% year-on-year to EUR 2,836m (previous year: EUR 2,969m). The Adjusted EBIT margin fell by 0.4 percentage points to 7.9%. On a like-for-like basis, adjusted for changes in the accounting, Adjusted EBIT came to EUR 2,714m and so was 9% down on the previous year.
The cause of the earnings decline was losses at Eurowings, primarily in connection with high non-recurring expenses for integrating the aircraft acquired from Air Berlin into the fleet. The earnings of Network Airlines and Aviation Services were up on the previous year, however. Considerable unit cost reductions and profitable growth at Network Airlines were more than able to compensate for higher fuel costs and other expenses due to irregularities in flight operations.
Harmonising workflows, minimising waste – these are the principles behind lean management, a philosophy of process optimisation. As part of its corporate strategy, the Lufthansa Group plans to embed the lean management culture more deeply. To achieve this, it set up a Group-wide lean programme in 2018. The focus here is on the following areas of action:
For us, lean management not only means that we consistently apply efficient methods. Above all, our holistic development of expertise allows us to become a company that is continuously learning. The lean management expertise that already exists today as a result of various initiatives at individual Group companies will be used throughout the Group in top projects as part of the lean programme. More than 20 projects are planned for 2019 alone, in both operating and administrative areas. The aim of these is to communicate lean management in a pragmatic way, thereby ensuring that the principle is applied throughout the Group.
24.3 thousand tonnes less CO2: Our internal programmes to reduce kerosene consumption led to a significant decrease in greenhouse gas emissions in 2018 as well. This is one of many contributions that will enable us to fulfil our corporate responsibility, since Sustainability is a prerequisite for the long-term financial stability and attractiveness of the Lufthansa Group for its stakeholders.
For many years, for example, we have taken steps to minimise the environmental impact of our business operations. To this end, we follow a strategic environmental programme that is applied in all areas of the Group. Its main fields of action are the reduction of emissions, active noise abatement, and energy and resource management.
The most important driver for reducing CO₂ emissions and aircraft noise is continuous investment in modern, particularly economical aircraft and engine technologies. By the end of 2025, the Lufthansa Group should receive 193 new aircraft, which stand out particularly due to their low fuel consumption and noise emissions.
For several years, we have also been involved in researching and using alternative fuels in aviation. We support the efforts of the EU to improve the organisation of European air traffic control systems. By creating a more efficient EU airspace, unnecessary detours can be avoided, thereby reducing CO₂ emissions.
Disproportionately increasing amounts of data, increasingly digitally-savvy end customers, rapidly growing start-up dynamics: The airline industry is currently undergoing fundamental changes along the entire value chain. The Lufthansa Group is ideally prepared to meet the structural challenges that result from digitalisation.
To accelerate the digitalisation of its core business, the Lufthansa Group established several centres of excellence in 2018. Teams of developers in the Digital Delivery Labs of Lufthansa Systems are working on the Lufthansa Group’s mobile applications and enhancing standardised application programming interfaces (APIs).
At present, more than 2,500 technology companies (startups) are focused on travel and mobility. In order to systematically deal with this ecosystem, the Lufthansa Group established the Lufthansa Innovation Hub (LIH) in Berlin in 2014. In 2018, it was named “Germany’s Best Digital Laboratory” for the second time in a row. Around 60% of the venture capital invested in travel and mobility technologies worldwide currently relates to Asia. For this reason too, the Lufthansa Group expanded the LIH to Singapore in 2018. Another location in Shanghai is planned for the second half of 2019.
Numerous digital innovations in our core business have already been well received by passengers. At the start of 2018, Lufthansa became one of the first airlines in the world to introduce contactless boarding using facial recognition at Los Angeles Airport; this is set to be expanded to other locations. For rebooking and other customer service queries, passengers are increasingly served by digital assistants (chatbots). This provides them with quick assistance when they need it.
A total of around 40 digitalisation projects are currently ongoing at the Lufthansa Group. These cover all areas where customers come into contact with us, and an additional EUR 100m will be invested in them this year.
The Network Airlines of the Lufthansa Group are working hard to implement their new distribution strategy. Following the introduction of a charge for bookings via global distribution systems (GDSs) primarily used by travel agents, such as Amadeus, this year the Network Airlines connected additional partners to the Lufthansa Group’s direct and NDC channels. This has brought the number of global partners to more than 2,000 by now. As a result, offers to customers can be increasingly differentiated and tailored to their individual needs.
Conditions were also established for the next step to improve the commercial offering. Lufthansa German Airlines, SWISS and Austrian Airlines will continue to make their pricing systems more dynamic and will introduce continuous pricing. More precise price increments will make the airlines more competitive in price comparisons, thereby increasing the passenger load factor and bolstering unit revenues.
Simultaneously, the Network Airlines are gradually merging the separate technologies for online sales with online self-services. The digitalisation of key service processes (check-in, rebooking, cancellation) will be continued together. This is also intended to ensure the customer has a seamless online experience across all websites. In the future, they will also be offered the entire product range of all of the Network Airlines on their individual websites.
Corporate responsibility, that is to say sustainable and responsible entrepreneurial practice, is an integral part of our corporate strategy. It means that we are committed to creating added value for our customers, employees and investors and to meeting our responsibilities toward the environment and society.